Question

According to the Chicago Boys, why did the Shock Therapy supported by the Pinochet government and the Chicago Boys succeeded in making Chile one of the highest income countries in Latin America?

Answer 1

In 1972, Chile's inflation was very high at 150%.Several factors such as price controls, protectionism caused these economic problems. Along the same time the United States conducted a campaign to deepen the inflation crisis. The Central Bank had thus increased the money supply to pay for the increasing deficit. This was the primary cause for the inflation.

United States government documents reported an antagonistic foreign economic policy toward the Allende government. Augusto Pinochet was mad aware of this economic plan known as El ladrillo, which meant the brick as the report was as thick as a brick. This plan was prepared around 1973 by the economist called as Chicago Boys who opposed Salvador Allende's government. This document contained the backbone which became the Chilean Economic Policy. Around 1975 this was prepared with the help of the CIA

The plan recommended a set of economic reforms that included deregulation and privatization. Among other reforms, they made the central bank independent, cut tariffs, privatized the state-controlled pension system, state industries, and banks, and reduced taxes.

The first instance of shock therapy was in the 1975 carried out after the military coup by Augusto Pinochet. The reforms were based on the liberal economic ideas centered on the University of Chicago. This helped in increasing the social spending, reduced poverty. The exports and per capita GDP also rose steadily far above the rest of Latin America.

Developments were very positive with regards to infant mortality and life expectancy. Infant mortality rate fell so much that Chile achieved the lowest level of infant mortality in Latin America The military government passed a law making all abortion illegal.

These improvements helped in making Chile one of the highest income and progressive countries in Latin America.